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Posted in Terminations

In a terse, per curiam decision, the Eleventh Circuit Court of Appeals upheld a district court’s determination that the preferential treatment given by a distributor to another manufacturer’s products was grounds for termination of the distributor agreements.

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A federal court in New Jersey applied the New Jersey Franchise Protection Act (NJFPA) and entered judgment in favor of a car manufacturer on a franchisee’s unlawful chargebacks claim.

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A federal court in Arizona recently granted a temporary restraining order for franchisor ReBath against one of its franchisees even though ReBath gave no opportunity to cure the defaults and had previously sent a notice of default with opportunity to cure for a similar issue. 

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The First Circuit Court of Appeals recently affirmed a district court’s denial of John Deere’s post-trial motions for a new trial or for judgment as a matter of law in its favor.

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A federal court in New Jersey granted summary judgment to a manufacturer who terminated its distributor for widespread fraud. Mall Chevrolet, Inc. v. General Motors, LLC, 2021 WL 426193 (D.N.J. Feb. 8, 2021).

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A state court of appeals in Maryland recently held that the sale of Pabst Brewing’s parent company and a change in Pabst’s corporate structure made neither the new parent nor Pabst a “successor beer manufacturer” such that Pabst could terminate a distributorship agreement without cause under the Maryland Beer Franchise Fair Dealing Act (BFFDA).

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The Sixth Circuit Court of Appeals recently affirmed a Michigan federal court’s grant of summary judgment enforcing Little Caesar’s termination of franchise agreements for related multi-unit franchisees based on nonpayment and repeat defaults. Little Caesar Enters., Inc. v. Little Caesars ASF Corp., 2021 WL 37544 (6th Cir. Jan. 5, 2021). Lathrop GPM represented Little Caesar in the case. Little Caesar terminated the franchise agreements after the franchisees accrued more than $200,000 in debt for, among other things, unpaid royalties, and failed to cure their defaults ...

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A federal court in Puerto Rico partially granted a manufacturer’s motion for summary judgment, finding a Puerto Rican law that protects local distributors from contract terminations without just cause does not apply to the distributor’s operations outside of Puerto Rico, and that the manufacturer had just cause to terminate the distributorship. M30 Brands, LLC v. Riceland Foods, Inc., 2020 WL 6084138 (D.P.R. Oct. 15, 2020). Riceland, an Arkansas rice manufacturer and exporter, terminated its distribution relationship with M30, a Puerto Rican company that distributed ...

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Based on evidence of numerous customer complaints regarding the franchisee’s business practices, a federal court in Tennessee recently granted a franchisor summary judgment, rejecting the franchisee’s improper termination claims.

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A federal court in Florida has held that Tim Hortons had properly terminated a franchise agreement with its former franchisee and was entitled to summary judgment and a permanent injunction against the former franchisee. Tim Hortons USA, Inc. v. Tims Milner LLC, No. 18-cv-24152-DPG (S.D. Fla. Jan. 7, 2020). As previously reported in Issue 243 of The GPMemorandum, Tims Milner entered into franchise and lease agreements with Tim Hortons and its affiliates in 2016 to own and operate seven locations in Michigan. The franchise agreements provided that, if Milner defaulted under a lease ...

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The Mississippi Supreme Court has ruled that a terminated automobile dealership has until the effective date of termination to file a complaint challenging the termination, rejecting an argument that the Mississippi Motor Vehicle Commission law requires a dealer to file such a challenge within 60 days of receiving a notice of termination. Nissan N. Am., Inc. v. Tillman, 273 So. 3d 710, 711 (Miss. 2019). Nissan terminated plaintiff Ann C. Tillman’s Natchez, Mississippi car dealership, Great River, because of unsatisfactory sales. Great River’s agreement with Nissan ...

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A federal court in Illinois denied a temporary restraining order to a terminated franchisee that sought to resume operations of its business after its franchise agreement was terminated because it repeatedly failed health audits. H Guys LLC v. The Hallal Guys Franchise, Inc., 2019 WL 3337116 (N.D. Ill. July 25, 2019). The franchisor, The Hallal Guys, conducted several health inspections of Steven Chong’s restaurants in May and July 2019. After finding persistent and worsening food safety and sanitary deficiencies, The Hallal Guys terminated Chong’s franchise agreement ...

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The U.S. District Court for the Eastern District of Pennsylvania has dismissed a constructive termination claim against a franchisor because the franchisee was still operating the franchise location. Takiedine v. 7-Eleven, Inc., 2018 WL 3141461 (E.D. Pa. June 27, 2018). The court held that when alleging constructive termination in violation of the duty of good faith and fair dealing, the franchise relationship must actually terminate. In this case, the franchisee alleged that the franchisor tried to force the franchisee out of the relationship through defamatory comments and ...

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In another case from the Northern District of Illinois involving Sears Home Appliances Showrooms, the court dismissed counterclaims brought by a group of franchisees on the grounds that the claims were barred by a one-year contractual limitations provision in their franchise agreements. Sears Home Appliance Showrooms, LLC v. Charlotte Outlet Store, LLC, 2018 WL 3068459 (N.D. Ill. June 21, 2018). The franchisees made a cursory argument that the limitations provision in their agreements was unenforceable as a matter of law because it shortened the 10-year statutory limitations ...

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A federal court in Illinois recently granted a franchisor’s motion for summary judgment, finding that it properly terminated the defendant’s six franchise agreements. Sears Home Appliances Showrooms, LLC v. Appliance Alliance, LLC, 2018 WL 3208514 (N.D. Ill. June 29, 2018). The franchisor, Sears Home Appliances Showrooms, terminated the agreements after the franchisee, Appliance Alliance, failed to meet several of its obligations, including paying rent and payroll on a timely basis, providing requested financial reports, and observing designated store hours. Sears ...

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In the case of Holiday Hospitality Franchising LLC v. CPTS Hotel Lessee LLC, No. 653096/2016 (N.Y. Sup. Ct. May 7, 2018), the Supreme Court of New York granted Holiday Hospitality’s motion to dismiss CPTS’s claim that the license agreement between the parties was a personal services contract and, therefore, could be terminated without cause. CPTS had attempted to terminate the license agreement due to Holiday’s alleged failure to properly invest in the growth and promotion of the Crowne Plaza brand. CPTS alleged, among other things, that Holiday breached the license ...

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The United States District Court for the Central District of California recently granted summary judgment in favor of H&R Block Tax Services (“Block”) in two consolidated cases in which franchisees had claimed that Block’s terminations of their franchises had breached their franchise agreements and violated the California Franchise Relations Act. Devore v. H&R Block Tax Servs. LLC, No. 16-cv-946 (C.D. Cal. Mar. 29, 2018). Gray Plant Mooty represents Block in both cases. Block terminated the agreements of the two related franchisees after discovering that they were ...

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A federal district court in Florida recently held that a franchisee’s refusal to install a new point-of-sale (POS) system was valid grounds for termination. Peterbrooke Franchising of Am., LLC v. Miami Chocolates, LLC, 2018 WL 1083552 (S.D. Fla. Feb. 28, 2018). Peterbrooke Franchising of America (PFA) terminated its agreement with former franchisee Miami Chocolates after it refused to install a new point-of-sale system, as required under the franchise agreement. When Miami Chocolates continued to operate in the same location, PFA sued to enforce the noncompete provision ...

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The United States District Court in the Northern District of Ohio recently ruled in favor of Buffalo Wild Wings (“BWW”) and against its former licensee, BW-3 of Akron, on cross motions for summary judgment. Buffalo Wild Wings, Inc. v. BW-3 of Akron, Inc., 2017 WL 5467156 (N.D. Ohio Nov. 14, 2017). The case began when BWW sent BW-3 – the only licensee in its system – a notice of termination after BW-3 did not cure its failure to comply with the remodel requirements imposed by the parties’ licensing agreement. However, the notice stated that the termination would be held in ...

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Meanwhile, a federal court in Nevada granted summary judgment in favor of a franchisor on franchisees’ claims for, among others, wrongful termination in violation of the Petroleum Marketing Practices Act (“PMPA”), breach of contract, and breach of the implied covenant of good faith and fair dealing. Nev. W. Petroleum, LLC v. BP W. Coast Prods., LLC, 2017 WL 4172269 (D. Nev. Sept. 20, 2017). The franchisees’ claims arose when BP allegedly took various actions to force them out of their businesses, which they claimed amounted to a constructive termination of their franchise ...

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A magistrate judge for the United States District Court for the Southern District of Texas recently denied a distributor’s motion for summary judgment on a counterclaim arising from the distributor’s alleged competitive activities. PPD Enters., LLC v. Stryker Corp., 2017 WL 4950065 (S.D. Tex. Nov. 1, 2017). The defendants, MAKO/Stryker, make orthopedic implants. They entered into an exclusive sales representative agreement with the plaintiff, PPD, for the sale and distribution of those implants. But a little more than a year after the agreement commenced, MAKO/Stryker ...

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A franchisee’s failure to pay royalties and other fees constitutes a material breach of contract justifying termination—even if the franchisee had expressed a willingness to pay—according to a Florida federal district court. Tim Hortons USA, Inc. v. Singh, 2017 WL 4837552 (S.D. Fla. Oct. 25, 2017). Following a bench trial, the court upheld Tim Hortons’ decision to terminate Singh for failure to pay monies owed and ordered Singh to pay all past-due amounts. The court did deny Tim Hortons its lost future royalties because the testimony of its senior finance manager regarding ...

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A United States District Court in Miami, Florida rejected a franchisee’s bid to invalidate a notice of default sent by email for failure to comply with the franchise agreement’s notice provisions. Tim Hortons USA, Inc. v. Singh, 2017 WL1326285 (S.D. Fla. Apr. 4, 2017). Tim Hortons had sent a notice of default by both email and overnight mail. The notice gave the franchisee, Singh, five days to cure certain financial defaults. Tim Hortons terminated the franchise after Singh allegedly failed to cure its default within five days of receiving a copy of the emailed notice. Having ...

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The United States District Court for the District of Arizona recently granted a hotel membership association’s motion to dismiss, holding that its termination of a hotel’s membership agreement did not constitute a breach of contract. Regency Midwest Ventures Ltd P’ship v. Best Western Int’l, Inc., 2017 WL 992357 (D. Ariz. Mar. 15, 2017). The membership association arrangement is akin to a franchisor-franchisee relationship. The membership association involved in this case, Best Western, initially determined that it had grounds to terminate the parties’ agreement ...

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A federal court in Illinois has granted summary judgment in favor of a franchisor on both its claims and the franchisee’s counterclaims in Fantastic Sams Franchise Corp. v. PSTEVO, LLC, 2017 WL 1075195 (N.D. Ill. Mar. 22, 2017). Fantastic Sams brought suit after the franchisee, PSTEVO, stopped paying weekly licensing fees and national advertising fees and then abandoned its franchised salons altogether. Initially, PSTEVO actively defended the litigation, asserting counterclaims which alleged that Fantastic Sams should have let PSTEVO spend its national advertising fees on ...

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The United States Court of Appeals for the Tenth Circuit has affirmed the district court’s grant of summary judgment in favor of a fast food franchisor in a case where the franchisee refused to sell and promote the franchisor’s mandatory menu plan. Steak N Shake Enter., Inc. v. Globex Co., LLC, 2016 WL 4743685 (10th Cir. Sept. 12, 2016). The dispute arose when Steak n Shake expanded its “$4 Menu” promotion, which offered a combination of items for a price of $4 – less than what customers would pay if each item was purchased separately. The franchisee refused to adopt the new $4 Menu ...

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The United States District Court for the Northern District of Illinois denied a motion to dismiss and permitted franchisor Tilted Kilt Franchise Operating, LLC to proceed with its request for a declaratory judgment that it had good cause to terminate its agreement with a franchise developer. Tilted Kilt Franchise Operating v. 1220, 2016 WL 4063172 (N.D. Ill. July 29, 2016). Tilted Kilt sought to terminate the agreement after discovering that the developer had made financial performance representations to prospective franchisees that were inconsistent with its Franchise ...

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Meanwhile, the United States District Court for the Northern District of Indiana granted in part and denied in part a manufacturer’s motion to dismiss claims arising from the termination of a dealership agreement in Ervin Equipment Inc. v. Wabash National Corp., 2016 WL 2892132 (N.D. Ind. May 17, 2016). Ervin entered into a dealership agreement with semitrailer manufacturer Wabash that granted Ervin the right to sell Wabash products in a territory that covered parts of Texas and all of Mexico. After several years, during which Ervin repeatedly sold Wabash products outside of its ...

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The United States Court of Appeals for the Third Circuit has affirmed in part and reversed in part a Pennsylvania federal court’s order dismissing a dealer’s claims that arose from the alleged improper termination of its dealer agreement. Bull Int’l, Inc. v. MTD Consumer Grp., Inc., 2016 WL 3542249 (3d Cir. June 29, 2016). MTD terminated, without cause, a termless dealer agreement with Bull in accordance with the express terms of the agreement. Bull claimed that, among other things, the termination breached the implied covenant of good faith and fair dealing because it was ...

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The United States District Court for the Southern District of New York has granted a distributor's motion for judgment on the pleadings, holding that its distribution agreement could not be terminated without cause. Neopharm Ltd. v. Wyeth-Ayerst Int'l LLC, 2016 WL 1076931 (S.D.N.Y. Mar. 18, 2016). Neopharm distributed vaccines manufactured by the defendant, Wyeth, pursuant to a distribution agreement signed in 2002. Originally, the agreement permitted either party to terminate the relationship without cause upon three years' notice. In 2009, in response to a separate ...

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A United States District Court in Arizona last month denied Chrysler's motion for summary judgment in a case brought by a dealership's majority shareholder and general manager whose contracts with Chrysler were terminated by the automaker. Smith v. FCA US LLC, 2016 WL 1158789 (D. Ariz. Mar. 24, 2016). At issue in this case was whether Smith, the plaintiff, qualified as a "dealer" and thus was protected under the federal Automobile Dealers' Day in Court Act ("DDCA") and similar state statutes.

In denying Chrysler's attempt to win as a matter of law without a trial, the court relied ...

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The United States District Court for the Eastern District of Wisconsin recently ruled that a dealer's sale of its business without supplier consent constitutes good cause for the termination of a dealer agreement under the Texas Fair Practices of Equipment Manufacturers, Distributors, Wholesalers, and Dealers Act ("FPA"). Texas Ujoints, LLC v. Dana Holding Corp., Bus. Franchise Guide 91 15,675 (CCH) (E.D. Wis. Dec. 21, 2015).

The court's decision constitutes a reversal of its prior grant of summary judgment in favor of the dealer, Texas Ujoints, as reported in Issue 196 of The ...

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The United States District Court for the District of South Dakota recently denied a manufacturer's motion for summary judgment, finding material questions of fact regarding whether it had "just provocation" to terminate the agreement with its distributor. Northern Truck Equip. Co. v. Omaha Standard, LLC, 2015 WL 7274357 (D.S.D. Nov. 16, 2015). The parties' relationship began in the 1980s, when they agreed that Northern Truck would distribute and sell Omaha Standard's truck equipment in South Dakota. In 2012, however, Omaha Standard granted another company the right to sell its ...

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The United States District Court for the District of South Carolina recently denied a terminated distributor's request for a preliminary injunction against a manufacturer and a new distributor. Machinery SoIs., Inc. v. Doosan Corp., 2015 WL 5554357 (D.S.C. Sept. 18, 2015). Doosan and Machinery Solutions were parties to a distribution agreement for the sale and service of new and used Doosan machine tools in North Carolina, South Carolina, and Georgia. Doosan terminated the agreement and entered into a new distribution agreement with Ellison for North Carolina, South Carolina ...

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The Wisconsin Court of Appeals affirmed a jury's finding that a manufacturer, CNH America, terminated a dealership agreement without good cause in violation of Wisconsin's Fair Dealership Law, finding that CNH had imposed a market share requirement that discriminated against small dealers. Chili Implement Co. v. CNH Am., LLC, 362 Wis. 2d 540 (Wis. Ct. App. Apr. 30, 2015). CNH, an agricultural equipment manufacturer, granted a dealership to Chili Implement. During the term of their agreement, CNH sent Chili a notice stating, in part, that Chili needed "to meet or exceed 90% of the ...

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The Second Circuit affirmed a grant of summary judgment in favor of hotel franchisor HLT Existing Franchise Holding LLC, dismissing a former franchisee's claim that HLT improperly terminated the franchise agreement and permitting HLT to recover liquidated damages. HLT Existing Franchise Holding LLC v. Worcester Hospitality Grp., LLC, 2015 U.S. App. LEXIS (2d Cir. Apr. 9, 2015). The terminated Hampton Inn franchisee, Worcester Hospitality Group, LLC (WHG), argued that the district court erred in three respects, contending that: (1) HLT had violated the covenant of good faith ...

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The Third Circuit recently affirmed a federal district court's dismissal of a lawsuit against the franchisor of the Doctors Express franchise system. In Fabbro v. DRX Urgent Care, LLC, 2015 WL 1453537 (3d Cir. Apr. 1, 2015), the franchisee alleged that Doctors Express breached its contract, breached the duty of good faith, and fraudulently misrepresented the actual startup costs the franchisee would expend after entering into the franchise agreement. It claimed that its actual costs exceeded the estimates by a substantial margin, and it argued that overly restrictive ...

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A Washington federal court granted Volvo's motion for partial summary judgment, finding that the implied covenant of good faith and fair dealing had no bearing on the exercise of Volvo's unrestricted contractual right to terminate a dealership agreement. Volvo Constr. Equip. N. Am., LLC v. Clyde/West., Inc., 2014 U.S. Dist. LEXIS 168264 (W.D. Wash. Dec. 3, 2014). Volvo terminated its dealership agreement with Clyde, a dealer of Volvo's heavy construction equipment, under a provision of the agreement that allowed either party to terminate the relationship for any reason after ...

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In Sleepy's LLC v. Select Comfort Wholesale Corp., the United States Court of Appeals for the Second Circuit reversed the dismissal of a distributor's breach of contract claims, holding that the terms of the parties' distribution agreement may have remained in place after its expiration date. 779 F.3d 191 (2d Cir. 2015). The distributor, Sleepy's, claimed that the manufacturer, Select Comfort, had breached the nondisparagement provision in the parties' distribution agreement. The trial court found that the distribution agreement ceased to operate after its stated expiration ...

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The United States Court of Appeals for the Ninth Circuit upheld the termination of a group of franchisees based on their failure to make required payments and their abandonment of one of their franchised offices. Century 21 Real Estate LLC v. All Prof'l Realty, Inc., 2015 U.S. App. LEXIS 645 (9th Cir. Jan. 15, 2015). After Century 21 filed suit to enforce termination of the parties' franchise agreements, the franchisees asserted a variety of counterclaims, including breach of contract, unfair competition, breach of the implied covenant of good faith and fair dealing, and violation of ...

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The United States District Court for the District of Puerto Rico recently denied summary judgment motions brought by both parties in Casco, Inc. v. John Deere Construction Co. Sr Forestry Co., 2014 U.S. Dist. LEXIS 120472 (D.P.R. Aug. 26, 2014). Casco alleged that John Deere had violated the Puerto Rico Dealers Act (Law 75) when it unilaterally cancelled a purchase order for an excavator that Casco had sold to a customer. Casco asserted that the cancellation negatively impacted its cash flow and resulted in constructive termination of the distributor agreement. The core issue on the ...

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The United States Court of Appeals for the Second Circuit affirmed a district court's denial of a franchisee's request for preliminary injunctive relief under the Petroleum Marketing Practice Act (PMPA), finding that the franchisor's termination based on the franchisee's failure to timely pay fees was proper under the PMPA. Yonker Cent. Ave. Snack Mart, Inc. v. NY Fuel Distribs., LLC, Case No. 13-3841-cv (2nd Cir. Oct. 31, 2014). Under the PMPA, a franchisee is entitled to a preliminary injunction if it shows: (1) the franchise has been terminated; (2) serious questions going to the ...

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The United States District Court for the Middle District of Georgia has reaffirmed the general rule that a franchisor's motive to terminate a franchise is irrelevant when there are valid grounds for the termination. ACG Pizza Partners, LLC v. Mykull Enters., Inc., 2014 U.S. Dist. LEXIS 119989 (M.D. Ga. Aug. 28, 2014). The plaintiff is the franchisor of the Stevi B's franchise system, which offers all-you-can-eat pizza and salad buffets. Defendant Mykull entered into a franchise agreement for a Stevi B's business in 2007. In April 2014, Stevi B's served Mykull a notice of termination ...

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A federal court in Ohio partially granted a manufacturer's motion to dismiss certain claims in a suit challenging the termination of a distribution agreement brought by one of its former dealers. Palmer-Donavin Manufacturing Co. v. Rheem Sales Co., 2014 U.S.  Dist. LEXIS 82993 (S.D. Ohio June 18, 2014). Palmer-Donavin had been a dealer of the manufacturer Rheem's heating, ventilation, and air conditioning equipment for more than forty years pursuant to a series of written distribution agreements, the last of which had expired in 2009. After 2009, they had continued their ...

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A federal district court in North Carolina denied a bakery goods distributor's motion to enjoin his termination because disputed issues of fact precluded a finding that he was likely to succeed on the merits of his wrongful termination claim. In Martin v. Bimbo Foods Bakeries Distribution, Inc., 2014 U.S. Dist. LEXIS 73992 (E.D.N.C. May 30, 2014), the manufacturer, Bimbo, terminated the parties' distribution agreement after discovering that Martin had created and transmitted false invoices to receive credit for extra inventory and had committed other material violations ...

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A federal court in California has refused to summarily grant a declaratory judgment that a franchisor properly terminated an agreement with its franchisee. Valvoline Instant Oil Change Franchising, Inc. v. RFG Oil, Inc., 2014 U.S. Dist. LEXIS 77382 (S.D. Cal. June 4, 2014). After franchisee RFG failed to make timely payments, Valvoline terminated its license agreement. But Valvoline agreed to forgo enforcement remedies and early termination fees if RFG released all claims and entered into a new "We Feature" Agreement by which RFG would continue to operate its various locations ...

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In Bans Pasta, LLC v. Mirko Franchising, LLC, 2014 U.S. Dist. LEXIS 71466 (W.D. Va. May 23, 2014), a federal court in Virginia denied franchisee Bans Pasta's motion to dismiss franchisor Mirko's counterclaims for breach of contract and other claims. We reported on a previous decision in this case in Issue 178 of The GPMemorandum. Franchisee Bans Pasta accused Mirko Franchising and its representatives of negligently or fraudulently inducing it to enter into the franchise agreement. Bans Pasta notified Mirko in March 2013 that its bad acts constituted a constructive termination of ...

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The United States Court of Appeals for the Third Circuit recently affirmed a trial court's grant of summary judgment in favor of a hotel franchisor on its breach of contract claim, and on the franchisee's counterclaims, despite the franchisee's claims that the franchisor first breached its obligations under the franchise agreements. Red Roof Franchising, LLC v. Patel, 2014 U.S. App. LEXIS 8078 (3d Cir. Apr. 29, 2014). Red Roof terminated Patel's franchise agreements in New Jersey and Minnesota as a result of uncured failure to pay royalties and other amounts due. Red Roof then ...

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A federal court in Ohio recently denied a dealer's motion for a preliminary injunction that would have required a tire manufacturer to continue supplying the dealer with products pending adjudication of the dealer's claims for wrongful termination and violation of 42 U.S.C. § 1981. In B Sr S Tires, Inc. v. Bridgestone Americas Tire Operations, LLC, 2014 U.S. Dist. LEXIS 26119 (N.D. Ohio Feb. 27, 2014), the plaintiff dealer was a thirty-plus year distributor of Bridgestone and Firestone tires and a minority-owned business that frequently fulfilled supply contracts for the U.S ...

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The Fourth Circuit affirmed in part the decision of the Western District of Virginia that certain post-term restrictive covenants did not apply to a former franchisee, finding that the expiration of the franchise agreement did not constitute a termination. Hamden v. Total Car Franchising Corp., 2013 U.S. App. LEXIS 23514 (4th Cir. Nov. 22, 2013). Former franchisee Hamden operated a paintless dent repair business for the entire fifteen year term of his franchise agreement. Electing to not renew the Franchise Agreement, Hamden informed Total Car Franchising (“TCF”) that he ...

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The United States District Court for the Eastern District of Missouri recently upheld a franchisor’s decision to terminate a group of franchisees that fraudulently concealed the true ownership of their operating company when entering into their franchise agreement. Dunkin’ Donuts Franchising LLC v. Sai Food & Hospitality, LLC, 2013 U.S. Dist. LEXIS 181752 (E.D. Mo. Dec. 31, 2013). Gray Plant Mooty represents the franchisor in this case. Dunkin’ terminated the parties’ franchise agreements and their related development agreement and sublease after an investigation ...

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In Machine Maintenance, Inc. v. Generac Power Systems, Inc., 2013 U.S. Dist. LEXIS 14275 (E.D. Mo. Oct. 8 2013), a federal court in Missouri denied cross motions for summary judgment in a dealer termination dispute. The plaintiff, which did business as Luby Equipment, Inc., was a former nonexclusive seller and servicer of generators manufactured by Generac Power Systems. Generac terminated Luby’s Buy/Sell Agreement and Service Agreement at an in-person meeting in December 2011. Although the termination letter that followed the meeting did not specify the reason for ...

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The Supreme Court of Appeals of West Virginia recently affirmed the termination of an alcohol distribution agreement based on the distributor’s repeated failure to timely pay for goods delivered by the supplier. N. Cent. Distribs., Inc. v. Moats, 2013 W. Va. LEXIS 1236 (W. Va. Nov. 8, 2013). Attempts by the supplier, Labatt, to withdraw payment from the distributor, NCDI, through electronic funds transfer failed for four consecutive months due to insufficient funds in the distributor’s account. Accordingly, Labatt notified NCDI that it had breached the parties’ ...

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A United States District Court in Colorado last week issued a preliminary injunction against Steak ‘n Shake franchisees who were terminated for failing to honor the system’s mandatory promotional programs. Steak ‘n Shake Enters., Inc. v. Globex Co., 2013 U.S. LEXIS 125330 (D. Colo. Sept. 3, 2013). Specifically, the franchisees refused to comply with the chain’s “$4 meal” menu, and a codefendant had failed to open stores required under an area development agreement. The injunction order prohibits the defendants from operating certain terminated restaurants and ...

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The Eastern District of Missouri recently ruled on a number of issues in a dealer’s claims for wrongful termination. In the first decision, the court granted the manufacturer’s motion for summary judgment on a claim that it violated Missouri’s Franchise Act by failing to provide 90 days’ notice of its intent to terminate the dealership, but the court denied the supplier’s motion as to the claim that it violated the Missouri Power Equipment Act by terminating the agreement without “good cause.” Lift Truck Lease & Serv., Inc., v. Nissan Forklift Corp., 2013 U.S. Dist ...

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The United States District Court for the District of Maryland has denied a franchisee’s motion for preliminary injunctive relief to prohibit the termination of its franchise agreement. Noya v. Frontier Adjusters, Inc., 2013 U.S. Dist. LEXIS 80672 (N.D. Md. June 7, 2013). Frontier Adjusters, Inc., and Noya were parties to several franchise agreements under which the franchisees operated insurance adjustment businesses, including one agreement that expired on June 9, 2013. Franchisee Noya had expressed its desire to enter into a new franchise agreement for the locations with ...

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A federal district court in the Eastern District of Pennsylvania this month issued a permanent injunction against a 7-Eleven franchisee and its employees who were found to have defrauded the franchisor by underreporting store sales. 7-Eleven, Inc. v. Upadhyaya, 2013 U.S. Dist. LEXIS 29091 (E.D. Pa. Mar. 1, 2013). In this case, the franchisor had terminated the franchise without an opportunity to cure, which the court upheld on the grounds that fraud by the franchisee goes directly to the essence of the contract and cannot be cured. Finding that the defendants had failed to offer ...

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The United States District Court for the Northern District of California recently denied a manufacturer’s motion for summary judgment on a distributor’s claim for a violation of the New Jersey Franchise Practices Act (NJFPA). Oracle America, Inc. v. Innovative Technology Distributors LLC, 2012 Bus. Franchise Guide (CCH) ¶ 14,924 (N.D. Cal. Sept. 18, 2012). As a “value added” distributor of Sun Microsystems (Sun) technology products, Innovative Technology Distributors (ITD) sold Sun’s products in conjunction with support and customization services. When Sun was ...

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Finding that the defendant franchisee failed to show likelihood of success on the merits, the United States District Court in Nebraska recently denied a motion for a preliminary injunction brought by a Home Instead franchisee who sought to keep operating under two expired franchise agreements. Home Instead, Inc. v. Florance, 2012 U.S. Dist. LEXIS 134554 (D. Neb. Sept. 20, 2012). The court relied solely on the interpretation of the language in the franchise agreements in denying the franchisee’s request to restore its pre-expiration “operational status quo.” The court ...

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In Dunkin’ Donuts Franchising LLC v. Oza Brothers, Inc., 2012 U.S. Dist. LEXIS 140595 (E.D. Mich. Sept. 28, 2012), a Michigan federal court granted summary judgment in favor of the franchisors (represented by Gray Plant Mooty) in a case against their former franchisees for breach of contract based on the underreporting of sales, tax fraud, and tax evasion. Oza Brothers owned a Dunkin’ Donuts/Baskin Robbins combination franchise in Michigan. Dunkin’ began an investigation after receiving a tip that Oza Brothers was not reporting sales made to auto dealerships. The ...

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Affirming a preliminary injunction reported in Issue 144 of The GPMemorandum, the United States Court of Appeals for the Seventh Circuit has found that a five-unit Steak N Shake franchisee would suffer “irreparable harm” if terminated for failing to comply with new policies governing pricing. Stuller, Inc. v. Steak N Shake Enterprises, Inc., 2012 U.S. App. LEXIS 17921 (7th Cir. August 24, 2012). The court based its ruling on evidence submitted by the franchisee that the pricing policy “would be a significant change to its business model and it would negatively affect its ...

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The Sixth Circuit Court of Appeals recently affirmed a preliminary injunction precluding a wine manufacturer from terminating two distributors as part of a nationwide reorganization plan. In Tri-County Wholesale Distribs., Inc. v. The Wine Group, Inc., 2012 U.S. App. LEXIS 13415 (6th Cir. June 29, 2012), the court found that the plaintiff distributors were likely to prevail on the merits of their argument that The Wine Group did not have “just cause” to terminate them under the Ohio Franchise Act. The Act states that “just cause” requires more than “[a] unilateral ...

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The United States District Court for the Southern District of New York recently dismissed breach of contract and related claims brought against a manufacturer/supplier in connection with its termination of a long-time distributor because the parties had not signed a formal written distribution contract. In National Gear & Piston, Inc. v. Cummings Power Systems, LLC, 2012 U.S. Dist. LEXIS 72879 (S.D.N.Y. May 17, 2012), the defendant, a manufacturer and supplier of automotive components, had been selling products on a wholesale basis to the plaintiff-distributor since 1998 ...

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In Husain, et al. v. McDonald’s Corp., et al., 2012 Cal. App. LEXIS 515 (Cal. Ct. App. Apr. 30, 2012), a California appellate court upheld the trial court’s grant of a preliminary injunction allowing McDonald’s franchisees to continue operating their franchises during the pendency of a lawsuit against the franchisor. The plaintiffs owned and operated multiple McDonald’s franchises in Northern California. They brought suit and asked the trial court to force McDonald’s to allow them to continue operating their franchises during the pendency of the litigation, which the ...

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In Ohio Learning Centers, LLC v. Sylvan Learning, Inc., 2012 U.S. Dist. LEXIS 41718 (D. Md. Mar. 27, 2012), the United States District Court for the District of Maryland upheld the franchisor’s termination of franchisees who ceased making payments under their license agreement while continuing to use the franchisor’s trademarks. The plaintiffs had entered into contracts with Sylvan to purchase and operate a former company-owned learning center as a franchise and executed two promissory notes to complete the transaction. When the plaintiffs ceased making the required ...

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In Long-Lewis Sterling Western Star Of Bessemer v. Sterling Truck Corporation, 2012 U.S. App. LEXIS 3130 (Feb. 17 2012), an auto dealer sued a distributor and manufacturer under the Alabama Motor Vehicle Franchise Act, claiming that the dealer had been coerced to participate in a program that conditioned the purchase of 2008 model year vehicles upon the purchase of the 2007 model. In affirming the lower court’s grant of summary judgment in favor of the manufacturer, the Eleventh Circuit panel first found that a 2010 amendment to the Act modifying the definition of “coerce” did ...

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In Smith’s Sports Cycles, Inc. v. American Suzuki Motor Corporation, 2011 Ala. LEXIS 181 (Ala. Oct. 14, 2011), the Supreme Court of Alabama denied the franchisee’s claim that franchisor Suzuki wrongfully terminated its franchise agreement. After Suzuki terminated the franchisee for failing to adhere to its standards regarding the neatness and appearance of the dealership facility, the franchisee sued, claiming that Suzuki violated Alabama’s Motor Vehicle Franchise Act. The Alabama statute allows a franchisor to terminate a franchisee for “good cause,” which ...

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The Second Circuit has affirmed a lower court’s decision finding no agreement between Tiffany and Beautiful Jewellers for the exclusive distributorship of Tiffany goods in India. Beautiful Jewellers Private Limited v. Tiffany & Co., 2011 U.S. App. LEXIS 19147 (2d Cir. Sept. 16, 2011). Beautiful Jewellers, which had been a Tiffany distributor for ten years, contended that it had reached a “verbal” agreement to be an exclusive distributor “as long as Tiffany sold products in India.” This arrangement, however, was not supported by any written agreement. Unsigned draft ...

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In Continental Cars, Inc. v. Mazda Motor of America, Inc., 2011 U.S. Dist. LEXIS 101888 (W.D. Wash. Sept. 9, 2011), a federal court in Washington held that state regulations did not trump contractual terms that were more favorable to a dealer. The case was triggered by the felony conviction of the dealership’s principal owner. Mazda then terminated the dealership pursuant to Washington law regulating relations between auto manufacturers and dealers, which provides for termination of the dealership for “good cause.” The dealership agreement, on the other hand, provided for ...

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In Atlantis Petroleum, LLC v. Getty Petroleum Marketing, Inc., et al.,  2011 U.S. Dist. LEXIS 105437 (E.D. Penn. Sept. 15, 2011), the United States District Court for the Eastern District of Pennsylvania reiterated the principle that motive is irrelevant in termination cases, so long as a valid reason exists to terminate a dealership agreement.

The plaintiff, a gasoline distributor that also managed service stations, sued the defendant-owner of service stations for breach of the Petroleum Marketing Practices Act, claiming that the defendant had improperly terminated the ...

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In a case we have been tracking in The GPMemorandum, income tax preparation franchisor Liberty Tax Service achieved a victory in a dispute concerning whether it properly terminated a former franchisee under Connecticut law on non-payment grounds. The court in Sherman St. Assocs., LLC v. JTH Tax, Inc., 2011 U.S. Dist. LEXIS 97073 (D. Conn. Aug. 30, 2011), found in Liberty’s favor on its counterclaims against franchisee Sherman Street Associates for breach of the parties’ franchise agreements, a promissory note, and a personal guaranty. The court held that Sherman Street’s ...

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After Coca-Cola North America terminated three distributors and filed suit to collect amounts due for products that had been delivered but not paid for, the distributors filed numerous counterclaims. In Coca-Cola North America v. Crawley Juice, Inc. et al.,  2011 U.S. Dist. LEXIS 52813 (E.D.N.Y. May 17, 2011), a federal court in New York dismissed each of those counterclaims. The defendants alleged that former Coca-Cola employees fraudulently induced them to purchase and invest in underdeveloped or vacant territories in exchange for oral promises of marketing and other support ...

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Issue 141 of The GPMemorandum on the April 14, 2011, reported on the dispute that developed because Compressor & Pump Repair Services (CPR) refused to sign Kaeser Compressors, Inc.’s (Kaeser) current form of dealership agreement. CPR had been Kaeser’s exclusive dealer in the territory for over 20 years, but when Kaeser requested that CPR sign its current form of dealership agreement, which provided for a non-exclusive territory, CPR refused. Kaeser sought a declaration that it had good cause to terminate the dealership agreement under the Wisconsin Fair Dealership Law (WFDL ...

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In Estes Automotive Group, Inc. v. Hyundai Motor America, 2011 U.S. Dist. LEXIS 32525 (C.D. Cal. Mar. 25, 2011), a California federal district court granted Hyundai’s motion for summary judgment against a dealer who alleged that Hyundai constructively terminated its dealership in violation of the federal Automobile Dealers Day in Court Act (ADDCA). The dealer sued for damages after it defaulted on a construction loan and a floor plan financing agreement with Hyundai’s credit subsidiary, Hyundai Capital America. To succeed under the ADDCA on a claim for termination without ...

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A federal district court in Kentucky recently held that a manufacturer’s provision of three-and-a-half months prior notice of termination if its distributor failed to meet certain performance levels did not serve to extinguish the manufacturer’s underlying right to terminate the relationship at will, as provide for in the parties’ previous written agreement. Although the distribution agreement between the parties in Link-Belt Construction Equipment Co. v. Road Machinery & Supplies Co., 2011 U.S. Dist. LEXIS 41404 (E.D. Ky. Apr. 15, 2011), had expired by its terms, the ...

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In South Shore Imported Cars, Inc. v. Volkswagen of America, Inc., 2011 U.S. App. LEXIS 13715 (1st Cir. July 5, 2011), the First Circuit affirmed a district court’s holding that the termination of an automobile dealer’s franchise agreement following a manufacturer’s refusal to consider the franchisee’s eleventh-hour buyout proposal did not violate Massachusetts law. In December 2008, the franchisee’s bank cancelled its revolving credit agreement for financing inventory purchases from VW. This cancellation was an undisputed breach of the franchise agreement ...

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In Diesel Machinery, Inc. v. The Manitowoc Crane Group, 2011 U.S. Dist. LEXIS 35370 (D. S.D. Mar. 31, 2011), a federal court in South Dakota granted partial summary judgment in favor of a manufacturer, finding that a notice of termination of a distributor agreement does not constitute a termination and that a notice of termination may be withdrawn prior to its effective date. In 2005, the defendant manufacturers of mobile hydraulic cranes entered into an agreement with Diesel Machinery, Inc. (DMI), a dealer/distributor in South Dakota, to grant DMI the right to sell and service ...

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In another Ohio case brought under the same statute as referenced immediately above, the court granted summary judgment on the plaintiff beer distributors’ claims that they were terminated improperly by a successor manufacturer. The Bellas Company v. Pabst Brewing Co., 2011 U.S. Dist. LEXIS 24781 (S.D. Ohio Mar. 11, 2011). After a new entity acquired all of the stock of Pabst Brewing Co. under a Stock Purchase Agreement, the new entity terminated the plaintiff distributors without providing sixty days notice prior to termination as required under the existing distribution ...

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In Progressive Septic, Inc. v. SeptiTech, LLC, 2011 U.S. Dist. LEXIS 27381 (D. Md. Mar. 15, 2011), a financially distressed manufacturer of septic systems sold the bulk of its assets to a new investor group. In the asset purchase agreement, the buyer explicitly declined to assume both the seller’s liabilities and its existing product distribution agreements. The buyer’s newly formed entity did adopt the trade name of the seller, however, and it hired several of the same management-level employees and continued to manufacture and distribute septic systems. The plaintiff was a ...

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The dispute in Kaeser Compressors, Inc. v. Compressor & Pump Repair Services, 2011 U.S. Dist. LEXIS 15111 (E.D. Wis. Feb. 14, 2011), developed because Compressor & Pump Repair Services (“CPR”) refused to sign the current form of dealership agreement offered by its supplier, Kaeser. CPR had been Kaeser’s exclusive dealer in the territory for over 20 years, but when Kaeser requested that CPR sign its current form of dealership agreement, which provided for a non-exclusive territory, CPR refused. Consequently, Kaeser brought a declaratory judgment action asking the court to ...

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The Ohio Alcoholic Beverages Franchise Act (“ABFA”) precludes a manufacturer from terminating a distributor of alcoholic beverages without consent or just cause. The statute specifies that “a manufacturer’s sale, assignment, or other transfer of the manufacturer’s product or brand to another manufacturer over which it exercises control” does not constitute just cause to terminate a distributor, but that just cause is not required for termination that occurs within 90 days of  “a successor manufacturer[’s] acqui[sition of] all or substantially all of the ...

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In Dunkin’ Donuts Franchised Restaurants LLC, et al. v. Strategic Venture Group, Inc., et al., 2010 LEXIS 119417 (D. N.J. Nov. 10, 2010), a case handled by Gray Plant Mooty attorneys, the U.S. District Court for the District of New Jersey entered a declaratory judgment finding that Dunkin’ Donuts had good cause under the New Jersey Franchise Practices Act to terminate the defendants’ franchise agreements for failing to “obey all laws” in connection with the operation of the franchises.

Dunkin’ terminated the defendants’ franchise agreements based on their failure ...

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In The Country Vintner of North Carolina v. Gallo Winery, Inc., 2010 U.S. Dist. Lexis 110615 (E.D.N.C. Oct. 18, 2010), a wine retailer sued for wrongful termination under the North Carolina Wine Distribution Agreements Act. The plaintiff, Country Vintner, had previously been a wholesaler of the Alamos brand of Argentinean wine for the entire state of North Carolina. In 2009, the manufacturer of Alamos replaced its original U.S. distributor (Billington) with a new distributor, Gallo. Gallo, upon taking over U.S. distribution of Alamos wine, began supplying its own wholesalers ...

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In September, an Ohio federal court granted the motion for preliminary injunction brought by a group of alcohol beverage distributors, enjoining their supplier from enforcing the terminations of their distributorships. The case is Tri-County Whole Distrib., Inc. v. The Wine Group, Inc., 2010 U.S. Dist. LEXIS 92598 (D. Ohio Sep. 2, 2010). In granting the motion, the court held that the supplier did not demonstrate that it had “just cause” to terminate the distributorships under the Ohio Alcoholic Beverages Franchise Act because the distributors had not breached their ...

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An Illinois federal court recently issued two decisions in a case rejecting a dealer’s claims that it was improperly terminated. In Scholl’s 4 Seasons Sports, Inc. v. Arctic Cat Sales, Inc., 2010 U.S. Dist. LEXIS 110360 (N.D. Ill. Oct. 18, 2010), the court denied the plaintiff’s motion for leave to amend its complaint to allege a violation of the Illinois Equipment Fair Dealership Law (IEFDL). The court found that dealers like the plaintiff who sold only ATVs and snowmobiles were not covered by the law. Although the IEFDL was amended in July 2010 to specifically include ATV ...

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A California appellate court upheld a trial court’s grant of summary judgment dismissing a former franchisee’s action for wrongful termination against franchisor International House of Pancakes. In doing so, the appellate court found that IHOP was within its rights to terminate the franchisee for failure to pay fees and produce records. The case is Safaei v. IHOP Corp., No. E046996, 2010 Cal. App. Unpub. LEXIS 7700 (Cal. Ct. App. 4th Dist. Sept. 28, 2010).

IHOP terminated the franchise agreement after having sent 10 separate notices to cure for failure to pay fees between 1996 ...

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In United Consumers Club, Inc. v. Prime Time Mktg. Mgmt., Inc., 2010 U.S. Dist. LEXIS 87236 (N.D. Ind. Aug. 23, 2010), a federal district court late last month denied a franchisor’s motion to dismiss claims for, among other things, wrongful termination and breach of fiduciary duty. Prime Time, a franchisee of an organization known as DirectBuy, had sued the franchisor after its franchise was terminated. Prime Time sold memberships to its buying club, with DirectBuy receiving royalty fees. In denying the motion to dismiss, the court found that the majority of Prime Time’s claims ...

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A recent Missouri federal court decision serves as a warning to franchisors to carefully draft guaranty provisions in franchise agreements to ensure they will be effective. In Medicine Shoppe Int’l, Inc. v. Anick, Inc., 2010 U.S. Dist. LEXIS 78431 (E.D. Mo. Aug. 4, 2010), the court dismissed the franchisor’s breach of guaranty claim against the franchisee’s corporate representative who signed the license agreement. That agreement contained a “note,” immediately below the franchisee’s signature block, stating “IF THE LICENSEE IS A CORPORATION OR PARTNERSHIP ...

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In Ramada Worldwide, Inc. v. Hotel of Grayling, Inc., 2010 U.S. Dist. LEXIS 65186 (D.N.J. June 30, 2010), Ramada terminated and sued its franchisee for failing to pay over $90,000 in royalties and defaulting on its guarantee. The franchisee counterclaimed, and alleged that because Ramada materially breached the agreement before the fees were due, by failing to provide it with proper signage, conduct training, and provide a working computer system, it was not liable for unpaid fees.

The court rejected that argument and awarded Ramada summary judgment on its claims. The court cited ...

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A New Jersey federal court issued a lengthy opinion last month addressing cross motions for summary judgment filed by a group of beer distributors and defendants InBev and Anheuser-Busch. The case is Warren Distributing Co., et al. v. InBev, et al., 2010 U.S. Dist. LEXIS 55542 (D.N.J. June 7, 2010). While the court addressed several issues, it held that InBev could not succeed on its motion for summary judgment on the plaintiffs’ breach of contract claim, finding that the plaintiffs had put forth viable evidence that InBev’s reliance on the doctrine of ...

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In a case that has been in litigation for several years, the Eighth Circuit has ruled in favor of a manufacturer of farm equipment in Cole v. Homier Distributing Co., 599 F.3d 856 (8th Cir. 2010). The background of the case, first reported in Issue 102 of The GPMemorandum, was that plaintiff Cole had entered into an oral agreement with manufacturer Homier under which Cole became a distributor and dealer of Homier’s products. As a result of that agreement, Cole established more than 30 dealerships. The parties later memorialized their agreement through a written distributorship ...

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In Minnesota Deli Provisions, Inc. v. Boar’s Head Provisions Co., 2010 U.S. App. LEXIS 10821 (8th Cir. June 11, 2009), the Eighth Circuit affirmed a grant of summary judgment dismissing plaintiff Minnesota Deli’s claims arising out of the termination of its distributorship for Boar’s Head deli products. In doing so, the court rejected Minnesota Deli’s argument that its distributorship was not terminable at will. The court held that statements by Boar’s Head executives allegedly telling Minnesota Deli it would “never be touched” as long as it grew its business ...

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In Al’s Service Center, et al. v. BP Products North America, Inc., 2010 U.S. App. LEXIS 6270 (7th Cir. Mar. 26, 2010), the Seventh Circuit affirmed a district court’s summary judgment ruling in favor of BP, finding that BP had not violated the Petroleum Marketing Practices Act (PMPA). In this case, a gas station franchisee was notified by the Illinois Department of Transportation of a partial condemnation of its property for a road widening project, which would result in the closing of some of the entrances to its gas station and consequently would negatively impact its business. In ...

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In Luxottica Retail North America, Inc. v. Stonybrook Ventures, Inc., 2010 U.S. Dist. LEXIS 46265 (M.D. Fla. May 11, 2010), Luxottica was unsuccessful in seeking summary judgment on a collection action against a terminated franchisee. Luxottica, which previously owned Lens Crafters stores, had acquired the Pearle Vision franchise system shortly after the defendants entered into a franchise agreement to open a Pearle Vision store. In response to Luxottica’s motion for summary judgment on its damages claims under the franchise agreement, the defendants argued that they had ...

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A Georgia federal court issued its opinion last month in Dunkin’ Donuts Restaurants LLC v. Sandip, Inc., 2010 LEXIS 43484 (N.D. Ga. May 3, 2010), granting franchisor Dunkin’ summary judgment. (Gray Plant Mooty represented Dunkin’ in the case.) In the decision, the court held that defendants had breached their two franchise agreements by failing to remodel their shops, participate in mandatory programs, attend required training, and prepare immigration forms for new employees. While the court found that defendants had alleged that they attended all required training ...

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The Ninth Circuit has affirmed a district court’s order for specific performance requiring the franchisor to renew the franchise agreement at the existing royalty rate. Prudence Corp. v. Shred-It America, Inc., 2010 U.S. App. LEXIS 3214 (9th Cir. Feb. 11, 2010). Although the court does not fully explain, it appears to have based its decision on findings that Shred-It breached the franchise agreement by waiting over a year to “timely submit proposed renewal terms” to Prudence. The court also held that specific performance was an appropriate remedy because the franchise ...

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The United States Supreme Court has held that claims of “constructive” termination and nonrenewal under the Petroleum Marketing Practices Act will not lie when the franchisee continues to operate under the franchisor’s marks. Mac’s Shell Service, Inc. v. Shell Oil Products Co., No. 08-240, and Shell Oil Products Co. v. Mac’s Shell Service, Inc., 2010 U.S. LEXIS 2203 (March 2, 2010). As reported in Issue 128 of The GPMemorandum, this was the first Supreme Court decision to interpret the PMPA. This decision could also help business format franchisors in similar cases.

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A Kentucky federal court has granted a motion for summary judgment on a dealer’s claims for breach of contract, unjust enrichment, and tortious interference in Western Kentucky Coca-Cola Bottling Co., Inc. v. Red Bull North Am., Inc., 2010 WL 65029 (W.D. Ky., Jan. 5, 2010).  Western alleged wrongful termination of its distributor agreement against Red Bull, contending that it did not receive an opportunity to cure prior to Red Bull terminating the agreement.  It also alleged that Royal Crown Bottling Company had tortiously interfered with its contract with Red Bull when Royal Crown ...

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In Englert, Inc. v. LeafGuard USA, Inc., WL 5031309 (D.S.C. Dec. 14, 2009), a South Carolina federal court held that the parties’ license agreement for the distribution of LeafGuard brand “leaf rejecting” rain gutters did not constitute a franchise agreement.  The dispute arose when Englert, the licensor, terminated its license agreement with LeafGuard USA for nonpayment of royalties.  Englert then sued LeafGuard for the unpaid royalties and, subsequently, for an injunction seeking the return of a gutter-fabricating machine that the license agreement provided would be ...

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In a case that could have broad implications for franchisors, the United States Supreme Court heard oral argument on cross appeals involving two related questions arising under the Petroleum Marketing Practices Act (“PMPA”):  (1) whether a gas station franchisee who continues to operate its franchise using the franchisor’s marks may bring a valid claim for “constructive termination,” and (2) whether executing “under protest” a renewal franchise agreement precludes a claim for “constructive nonrenewal.”  The consolidated petitions, Mac’s Shell ...

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In L & L Wings, Inc. v. Marco-Destin, Inc., 2009 WL 4884165 (S.D.N.Y. Dec. 16, 2009), the court granted summary judgment in favor of plaintiff L & L Wings for breach of contract and trademark infringement.  The parties had entered into an agreement by which, among other things, the defendants obtained a license to use the L & L Wings trademark and trade dress on several retail stores selling beachwear and accessories.  At the closing, one of plaintiff’s owners failed to sign the license agreement, although it was signed by his business partner later that day.  When the license expired in ...

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A California federal court this month granted a franchisor’s motion for summary judgment and upheld the termination of a franchise due to the sale of unapproved products. Baskin-Robbins Franchising LLC v. Mihranian, No. 2:08-cv-07022 (C.D. Cal. Jan. 5, 2010). Gray Plant Mooty represents the franchisor in this case. Baskin-Robbins had terminated the franchisees without opportunity to cure immediately after finding in October 2008 that they were selling frozen yogurt at their store, a product specifically prohibited for sale by the franchisor after April 2008. Despite being ...

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In 7-Eleven Inc. v. Puerto Rico-7 Inc., 2009 WL 4723199 (N.D. Tex. Dec. 9, 2009), a federal district court in Texas granted summary judgment against a franchisee who continued to operate its convenience stores after being terminated. The court found that the franchisee had breached its franchise agreement by failing to make required payments to the franchisor and failing to comply with its development schedule for additional stores. The court further found that the franchisor had properly terminated the franchise and advised the franchisee that it was no longer entitled to operate ...

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The United States Court of Appeals for the Seventh Circuit has affirmed the dismissal of RICO claims and a variety of other charges brought by a franchisee in Rao v. BP Products North America, Inc., 2009 WL 4640634 (7th Cir. Dec. 9, 2009). The case was filed by a gas station franchisee alleging that the termination of his operating agreements by franchisor BP violated the Petroleum Marketing Practices Act and the Racketeer Influenced and Corrupt Organizations Act, and was a fraud and a breach of contract. The record in the case, however, showed that the franchisee had, over the course of a ...

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In Cleveland v. AmeriSpec, Inc., Case No. 2007 CA 8747 (Fla. 12th Jud. Dist., Nov. 16, 2009 ), a Florida trial court upheld the immediate termination of a husband and wife franchisee after the husband was arrested for transmitting harmful material to a minor by use of a computer and using a computer for child exploitation. Gray Plant Mooty represented the franchisor in this case. Two years after the husband and wife had purchased an AmeriSpec franchise, the husband was arrested and charged with multiple counts of soliciting a minor over the Internet. According to local news coverage of ...

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In Tolle Furn. Group, LLC v. La-Z-Boy Inc., 2009 WL 2160981 (W.D. Wash. July 17, 2009), a Washington federal court denied a motion for a temporary restraining order and refused to stop the termination of a furniture retailer who alleged that La-Z-Boy had violated the Washington Franchise Investment Protection Act (“FIPA”). The court rejected the plaintiff’s contention that La-Z-Boy did not have good cause to terminate the retailer agreement under the FIPA. The court noted that even if it were to consider La-Z-Boy a franchisor under the FIPA, the plaintiff did not dispute that ...

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An Illinois federal court denied a motion to dismiss a tortious interference claim, finding that the facts as alleged could sustain such a claim. In Echo, Inc v. Timberland Machines and Irrigation, Inc., 2009 WL 2746725 (N.D. Ill. Aug. 26, 2009), a Timberland dealership agreement was terminated by an outdoor power equipment manufacturer, Echo. In addition to claims against Echo for wrongful termination, Timberland asserted a claim of tortious interference with contract against a neighboring dealer (LEPCO) that took over Timberland’s former sales territory on the effective ...

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In Valpak Direct Marketing System, Inc. v. Maschino, 2009 WL 2942716 (11th Cir. Sep. 15, 2009), the Eleventh Circuit affirmed a trial court’s decision granting summary judgment to franchisor Valpak Direct Marketing Systems, finding that its former franchisees had failed to pay fees and were properly terminated. The franchisees, Mr. and Mrs. Maschino, had been issued a notice of default for nonpayment and were subsequently terminated when they failed to pay within the cure period set forth in the notice – even though they had made the payment prior to the date Valpak issued the ...

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A Florida federal court recently granted an injunction to franchisor Dunkin’ Donuts for the franchisee’s failure to pay franchise and advertising fees and to comply with the post-termination provisions of the franchise agreements.  The case is Dunkin’ Donuts Franchised Rest. LLC v. KEV Enter., Inc., 2009 WL 1587983 (M.D. Fla. June 5, 2009). At issue was whether the franchisor had waived the right to terminate based on nonpayment. The franchisee contended that Dunkin’ Donuts tolerated late payment and therefore waived the right to terminate it on those grounds. The court ...

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In Ramada Worldwide, Inc. v. RIP Management Group Corp., 2009 WL 1810733 (D.N.J. June 25, 2009), Ramada terminated the franchise agreement after the franchisees failed to cure certain quality assurance defaults. The franchisees argued that the termination was wrongful and that Ramada “unfairly and inconsistently” conducted the quality assurance inspections with the intention of defaulting them in breach of the covenant of good faith and fair dealing under New Jersey law.

On Ramada’s motion for summary judgment, the court held that the express terms of the franchise ...

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The Sixth Circuit recently affirmed a summary judgment ruling by an Ohio federal district court in favor of plaintiff Wendy’s International, Inc. on all claims brought against it by a franchisee. Wendy’s International, Inc. v. Saverin, 2009 WL 2018163 (6th Cir. July 9, 2009). The franchisee operated 42 stores in Missouri and Illinois. In 2006, the franchisee began defaulting on its financial obligations, leading Wendy’s to terminate three of its franchise agreements. The parties subsequently reinstated the franchises through a reinstatement agreement that required the ...

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In Haynes Trane Service Agency, Inc. v. American Standard, Inc. (10th Cir., reissued as amended July 6, 2009), the manufacturer (Trane) entered into an “at-will” distributorship agreement with the distributor (Haynes) pursuant to which Haynes purchased heating and air conditioning products from Trane for resale to the public. Eventually, Trane terminated the agreement after Haynes cheated Trane by submitting false invoices under Trane’s rebate program. Haynes filed suit against Trane claiming, among other things, that: (1) Trane had improperly terminated the “at ...

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Outside the auto industry, a New Jersey federal court recently issued a temporary retraining order prohibiting the termination of a Master Distributor Agreement, finding that the manufacturer likely violated the New Jersey Franchise Practices Act. Emergency Accessories & Installation, Inc. v. Whelen Engineering Co., Inc., 2009 WL 1587888 (D.N.J. June 3, 2009). 

Emergency Accessories & Installation (EAI) sells and installs emergency response vehicle equipment. Over 95 percent of its inventory comes from Whelen Engineering, Inc., a manufacturer of emergency lighting, and ...

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Even before its recent bankruptcy filing and widespread dealer reduction announcements, GM was involved in significant litigation with its dealers concerning distribution issues. Five recent cases, briefly discussed below, are representative.

In Courtesy Oldsmobile, Inc. v. General Motors Corp., 2009 WL 1353762 (9th Cir. May 15, 2009), and C&O Motors, Inc. v. General Motors Corp., 2009 WL 891033 (4th Cir. Apr. 1, 2009), the courts concluded that GM did not violate dealer agreements or state motor vehicle franchise laws when it discontinued its Oldsmobile line. In the Courtesy ...

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The recent bankruptcy filings by General Motors and Chrysler have left the auto industry under siege and led to hundreds of dealership terminations across the country. In June, both the U.S. Senate Commerce Committee and the U.S. House Committee on Energy and Commerce held hearings on the status of dealership closures across the country. James Press, President and CEO of Chrysler, testified that Chrysler would be closing 789 dealerships—representing about 25% of dealerships—as a result of the Chapter 11 bankruptcy filing. General Motors’ CEO, Frederick Henderson ...

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In a case that further buttresses the termination rights of franchisors, both a bankruptcy and federal district court upheld such rights despite the fact that more than seven months passed between the date the franchisees had received their notices of termination and the date the franchisor announced that it would seek to enforce them. The franchisee at issue in In re Making the Dough, Inc., 2009 WL 975170 (Bkrtcy. M.D. Pa. Mar. 27, 2009), and Domino’s Pizza Franchising LLC v. Making the Dough, Inc., 2009 WL 1011584 (M.D. Pa. Apr. 15, 2009), owned two pizza franchisees near ...

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In Guesthouse Int’l Franchise Sys., Inc. v. British Am. Properties, 2009 WL 792570 (M.D. Tenn. Mar. 23, 2009), a Tennessee federal court awarded franchisor Sumner Ventures, Inc. (formerly Guesthouse International) $82,651.95 in attorneys’ fees and costs as well as damages in the amount of $358,708.28 on its claims that the franchisee had breached the parties’ hotel franchise. As reported in Issue No. 116 of The GPMemorandum, the court granted in part the franchisor’s motion for summary judgment on its claims that the franchisee had breached the agreement in failing to ...

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Last month the Seventh Circuit reversed a $2.1 million jury verdict and held that the defendant’s action amounted to discontinuation of a product brand, which is good cause for termination under the Maine Franchise Act. FMS, Inc. v. Volvo Const. Equip. N. Am., Inc., 557 F.3d 758 (7th Cir. Mar. 4, 2009). This was the second trip by this case to the court of appeals.

The plaintiff had been a Samsung construction equipment distributor. One year into the relationship, Samsung had sold its construction equipment division to Volvo and given Volvo three years to phase out the use of the Samsung ...

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Conversely, in Larry Hobbs Farm Equip., Inc. v. CNH America, LLC, 2009 WL 153357 (Ark. Jan. 22, 2009), the Supreme Court of Arkansas answered much differently questions from a federal court regarding the interpretation of provisions in the Arkansas Franchise Practices Act (“AFPA”) and the Arkansas Farm Equipment Retailer Franchise Protection Act (“AFERFPA”). This case arose after CNH America informed Hobbs it would no longer be supplying “DMI” brand equipment to Hobbs because CNH was withdrawing that product from the market. CNH had been selling identical tillage ...

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In Sherman Street Associates, LLC v. JTH Tax, Inc., 2009 WL 426469 (D. Conn. Feb. 20, 2009), a Connecticut federal court considered dueling summary judgment motions from the terminated former franchisee-plaintiff and franchisor-defendant, JTH Tax, Inc. (doing business as Liberty Tax Service). The case came about after the franchisor terminated the franchise agreement for underpayment of fees and failure to pay on a promissory note, among other alleged violations. The franchisee’s lawsuit claimed wrongful termination in violation of the Connecticut Franchise Act (CFA) and ...

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In Rocky Mountain Chocolate Factory, Inc. v. SDMS, Inc., 2009 WL 579516 (D. Col. Mar. 4, 2009), a Colorado federal court this month denied a franchisor’s claim for future royalties after termination of the franchise. This case shows that, although future royalties may be claimed under certain states’ laws, a franchisor must still prove that they are certain. The parties in this case entered into a franchise agreement for a franchise in San Diego. From the beginning, the franchisees operated at a loss. They were defaulted several times for failure to comply with the franchisor’s ...

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In Baskin-Robbins Franchising LLC v. Mihranian, No. 2:08-cv-07022 (C.D. Cal. Jan. 23, 2009), a California federal district court last month denied a motion by franchisees to dismiss their franchisor’s complaint and held that Baskin-Robbins’ immediate termination of the franchise did not violate the California Franchise Relations Act (“CFRA”). Gray Plant Mooty represented the franchisor in this case. Baskin-Robbins had immediately terminated after finding the franchisees were using and selling non-fat frozen yogurt at their ice cream shop, a product specifically ...

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In what will likely become one of the most quoted franchise opinions of the year, a Colorado federal district judge has ruled against Quizno’s in a case the franchisor brought against a terminated former franchisee for injunctive relief and breach of contract. Quizno’s Franchising II LLC v. Zig Zag Rest. Group, LLC, Case No. 06CV10765, Bus. Franchise Guide (CCH) ¶14,046 (D. Colo. Dec. 31, 2008).  The court found Quiznos’ “whole charade of ‘terminating’ and ‘defaulting’ franchisees who failed [a] field test was just that—a charade—driven not by Quiznos’ ...

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In a case of first impression under Pennsylvania law, that state’s highest court has held that there are some situations in which a franchisor can terminate its franchisee without any right to cure even if a franchise agreement provides otherwise. LJL Transportation, Inc. v. Pilot Air Freight Corp., 2009 WL 144561 (Pa. Jan. 22, 2009). The egregious circumstances in this case were that the franchisee in bad faith was diverting business to a competitor of the franchisor. In that situation, the Pennsylvania court held, immediate termination was warranted because the breach “was ...

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By a 4-3 decision with a vigorous dissent, the Court of Appeals of Maryland ruled in John Deere Construction & Forestry Co. v. Reliable Tractor, Inc., 2008 WL 4191153 (Md. Ct. App. Sept. 15, 2008), that the “good cause for termination” provision of the Maryland Equipment Dealers Act applied to open-ended contracts originally executed before that provision of the statute was enacted. The two dealer agreements at issue contained a clause providing that they could be terminated by either party with 120 days’ notice. By continuing to perform their obligations under the contracts ...

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Boar’s Head Provisions, a producer of meats and cheeses, terminated its Minnesota distributor, Minnesota Deli Provisions, after a six-year relationship. The parties did not commit their agreement to writing. Minnesota Deli responded to the termination by filing suit, claiming that the parties agreed that Minnesota Deli would only be terminated if it failed to perform adequately. In Minnesota Deli Provisions, Inc. v. Boar’s Head Provisions Co., Inc., 2008 WL 4527770 (D. Minn. Sept. 30, 2008), the court granted summary judgment for Boar’s Head on all of Minnesota Deli’s ...

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In Santiago-Sepulveda v. Esso Standard Oil Co. (Puerto Rico), Inc., 2008 WL 4684150 (D.P.R. Oct. 18, 2008), a United States District Court considered Esso’s proposed withdrawal from selling gasoline through service stations in Puerto Rico. Esso had announced to its franchisees that it planned to sell its assets, including its franchise agreements, to Total Petroleum. Total then offered franchise agreements to most, but not all, of Esso’s franchisees. Esso’s franchisees brought suit, arguing that Esso’s proposed withdrawal from the market violated the Petroleum ...

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In Hubbard Auto Center, Inc. v. General Motors Corporation, 2008 WL 3874642 (N.D. Ind. Aug. 14, 2008), a former Oldsmobile distributor sued GM under the Indiana Deceptive Franchise Practices Act for unlawful termination and unlawful failure to renew a distributorship agreement without good cause. In late 2000, GM announced to its dealers by letter that it would phase out and ultimately discontinue its Oldsmobile line of vehicles. In its letter, GM also stated, however, that the announcement was not a termination of the dealership and that GM would continue to fulfill its ...

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In 1-800-Radiator of Wisconsin, LLC v. 1-800-Radiator Franchise, Inc., 2008 WL 4500682 (E.D. Wis. Oct. 1, 2008), the court considered a motion for a temporary restraining order to prevent the termination of its rights. The plaintiff was a distributor that was considered to be a “franchisee” under the 1-800-Radiator system, which took orders for the purchase of radiators made through the franchisor’s proprietary network. The franchisor advised the plaintiff that it planned to acquire one of the franchisor’s competitors, which would result in a large increase in business ...

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The United States Court of Appeals for the First Circuit held this month that neither federal law nor Massachusetts state law precluded termination of a Land Rover/Jaguar dealer in Wagner & Wagner Auto Sales, Inc. v. Land Rover North America, Inc., 2008 WL 4823138 (1st Cir. Nov. 7, 2008). In upholding the district court’s finding of “good cause” to terminate, the appeals court focused on the dealer’s failure to meet contractual deadlines for getting approval of plans for a new dealership location. In turn, the First Circuit found no evidence of “bad faith” on the part of the ...

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In New England Surfaces v. E.I. DuPont de Nemours and Co., 2008 WL 4307112 (1st Cir. Sept. 23, 2008), DuPont terminated a dealer of its Corian line of products for failure to meet sales goals. In a decision largely devoted to an analysis (or rejection) of the dealer’s lost profits damages claim, the United States Court of Appeals for the First Circuit vacated a district court’s grant of DuPont’s summary judgment motion on the dealer’s claim for wrongful termination under the Connecticut Franchise Act.

DuPont argued (and the district court below had found) that the Connecticut ...

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In Western Kentucky Coca-Cola Bottling Co. v. Red Bull North America, Inc., 2008 WL 2548095 (W.D. Ky. June 20, 2008), a terminated beverage distributor sued for breach of contract and unjust enrichment, alleging wrongful termination of its distribution agreement. The distributor alleged that the agreement, which had no set term, was to “never be terminated without prior written communication [by the manufacturer] of the grounds [for termination]…and the opportunity to cure those grounds.” Although Kentucky law holds that agreements with no definite term may be ...

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The United States District Court for the District of Oregon recently issued two important decisions interpreting Oregon’s Motor Vehicle Dealerships Act—both involving the termination of the same motorcycle dealership, Everything Cycles, Inc. (“ECI”). The ECI terminations arose out of the felony conviction of ECI’s sole owner for purchasing a stolen motorcycle on the internet. The conviction caused ECI to lose its business license in the municipality in which it operated, forcing it to relocate to a different city.

As reported in Issue 102 of The GPMemorandum, Yamaha ...

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The United States District Court for the District of Rhode Island has addressed retroactive application of the Rhode Island Fair Dealership Act, which was passed into law in 2007. In Pascale Service Corp. v. International Truck & Engine Corp., 2008 WL 2340399 (D.R.I. June 9, 2008), the court was presented with a unique set of facts. Under the terms of a 35-year-old distribution agreement, either party was permitted to terminate the parties’ agreement “at any time without cause by giving written notice to the other party, specifying the effective date of termination.” The ...

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Holding last month that the Maine Franchise Act does not create a “new set of standards” for temporary restraining order and injunction requests, the United States District Court for the District of Maine refused to stop the termination of a heavy equipment dealership in Frank Martin Sons, Inc. v. John Deere Construction & Forestry Co., 2008 WL 787680 (D. Me. March 21, 2008). The court instead applied a standard test weighing factors such as the plaintiff’s likelihood of success on the merits and alleged irreparable harm.

The plaintiff’s main argument was one made often – ...

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The United States District Court for the Eastern District of Missouri recently granted a manufacturer’s motion to dismiss several counts of a complaint relating to the termination of a John Deere dealership. In Heisel v. John Deere Const. & Forestry Co., 2008 WL 53232 (E.D. Mo. Jan. 2, 2008), the court found that John Deere’s termination of a long-standing dealership following the death of its principal did not, as a matter of law, violate the Missouri Farm Equipment Act or the Missouri Construction Equipment Act. Both of these statutes prohibit dealership terminations unless ...

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The United States Court of Appeals for the Third Circuit in Maple Shade Motor Corp. v. Kia Motors Am., Inc., 2008 WL 111041 (3d Cir. Jan. 11, 2008), affirmed summary judgment in favor of an automaker on its dealer’s unlawful termination claim. The court found that the dealer’s failure to build a showroom was a material term of the dealership agreement that had been breached. The Third Circuit relied on prior case law – under the New Jersey Franchise Protection Act – that holds that a franchisor has good cause to terminate when a franchisee breaches a material term of a franchise ...

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In Frank Brunckhorst Co., L.L.C. v. Coastal Atlantic, Inc., 2008 WL 276409 (E.D. Va. Jan. 29, 2008), the court granted a national distributor’s motion to dismiss a counterclaim brought by one of its regional distributors who had been terminated. The plaintiff, a national distributor of Boar’s Head deli products, sued the regional distributor for trademark infringement and nonpayment. The defendant regional distributor countersued on numerous grounds, including breach of contract, tortious interference, and fraud.

In dismissing the counterclaims, the Virginia federal ...

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In Dunkin’ Donuts Franchised Restaurants v. Agawam Donuts, Inc., 2008 WL 619399 (D. Mass. March 5, 2008), a case being handled by Gray Plant Mooty, Dunkin’ Donuts seeks to enforce its termination of 52 franchise agreements entered into with the defendants. As Dunkin’ Donuts stated in its notices of termination and complaint, the terminations were based on the defendants’ failure to comply with specific provisions of the franchise agreements, including those prohibiting them from: (1) violating federal labor, tax, and immigration laws, (2) engaging in activities ...

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About this Publication

The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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